Welcome to Bank of America's 2022 healthcare conference, live from Las Vegas. I'm Derik de Bruin, the Senior Life Sciences and Diagnostic Tools Analyst, also CROs and CMOs. Our next company is Catalent, and with us from Catalent is Tom Castellano, CFO, and Paul Surdez, Head of IR. Gentlemen, thank you for being here. Thanks for making the trip out to Vegas. We've grown up together. We participated in your IPO in 2014. What a difference nine years makes, eight years. I can't even count anymore. The company was 3% biotech when we did the IPO. It's 50+% now. Margins were hardly moving. Margins are now real expanding. I mean, it's been a really interesting story. I think I'll let you kick it off, Tom, with a recap of what's going on, and then I'm going to pepper you with a bunch of questions. Yeah, no, thanks, Derik. Appreciate the opportunity, and thanks to everyone for joining. The other thing I'd highlight around the IPO is just the difference in growth rate that we experience now from a top-line standpoint. We went public with a 4%-6% revenue growth rate, and we struggled to get there, and I wasn't CFO of the company at the time, but I was part of it in Paul's role, actually, and stand here today at an 8%-10% growth rate. We've been pretty significantly outperforming that, so, as you said, completely different position that we're in as a company today versus where we were at the time of the IPO back in 2014, but just to kick off with a couple of opening comments from me, we've just reported our third quarter last week. We've managed to continue the financial momentum. We saw 20% revenue growth in the third quarter, 26% EBITDA growth, continue the margin expansion story for the fiscal year. Our biologics business continues to be the BU that I would say has been outperforming. We saw 30% revenue growth from that segment in the quarter. And as Derik mentioned, that's about 50% of our revenue overall today. The SOT business is also one that has been, I would say, outperforming. We've added the Bettera acquisition to that, which is a nutraceutical gummy business, which is integration underway, and I would say off to a really strong start. It's a business that's been growing 20% historically, plus EBITDA margins that feel more biologics-like than they do that of our SOT business. But we saw continued recovery around our SOT business in the quarter also, with 14% organic growth from a top-line standpoint. This business has been historically, I would say, a low to mid-single-digit grower, so really great overperformance there. On the heels of a really strong Q3, we once again were in a position to increase our fiscal 2022 full-year financial guidance. This is the third consecutive quarter that we were able to do that. We expect growth rates from a revenue standpoint for the fiscal year now being north of 20%-22%. So, again, keeping the momentum we've seen on a quarterly basis from a full-year standpoint as well. As part of the call last week, we also gave some qualitative commentary around what we expect for fiscal 2023. This has been a point of focus and uncertainty for some analysts and investors, so we thought it was important to maybe go out a little bit earlier than we normally would with some directional color around what the company's expectations are. And in doing so, we significantly de-risked our COVID-related revenue for fiscal 2023 and continue to have line of sight to very strong growth rates that are expected to be in line with our long-term outlook for fiscal 2023 of 8%- 10%. We'll obviously give a lot more specificity around the different components of our financial guidance, as well as a more deeper dive at the segment level as part of our earnings call at the end of the fiscal year in August. I would say what gives us the conviction around that is a couple of things. We've seen some strong, large commercial tech transfer programs that we've managed to win and will be onboarding into the Catalent portfolio from a biologics perspective. As everyone knows, we've been investing significantly from an organic perspective and have additional capacity across some really attractive growth areas: gene therapy, cell therapy, drug substance, as well as drug product that will be coming online during the fiscal year that will start to ramp and contribute to the revenue profile. And lastly, I would say the Bettera business, which I mentioned as being a tailwind for us here in our third quarter in fiscal 2022, will be organic as we'll lap the acquisition period next year and continue to have line of sight to 20+% growth for that part of the business again at attractive EBITDA margins. Just one more comment here I'd make. We also reiterated our long-term outlook as part of the call last week for fiscal 2026, where we have line of sight to a $7.5 billion top line with approximately 30% EBITDA margins. And the color we added to that, that was a target we put out as part of the JP Morgan Conference in January at the start of the calendar year. But we added some commentary around this to get investors to understand that we're not reliant on COVID-related revenue at all in that 2026 target and have line of sight to that $7.5 billion without any contributions from COVID-related therapeutic or vaccine revenue. And then lastly, I would just say, as CFO of the company, I feel the need to make a plug about the strength in our balance sheet right now. We stand here today at pretty much the lowest level of leverage we've ever been at. I joined the company with a 7.5x leverage under an LBO with Blackstone. We stand here today at about 2.6x from a net debt to EBITDA basis, so it gives us significant M&A firepower in the event that we were willing to take leverage up to 4-ishx, 4 and 4.5x, which we've certainly done in the past for some strategic acquisitions, provided we had the right line of sight to quickly leveraging back down to our long-term outlook of somewhere between 2.5 and 3x. So if you do the math on that, that gives us a good 2+, $2-$2.5 billion of M&A firepower. And M&A has been an area of opportunity for us here. I mean, first and foremost, we've been on organic growth, but from an M&A standpoint, that continues to be a lever that we've utilized in the past in a way to create value, and it's worked out extremely well for the company. So we'll continue to use that as a lever from time to time. So with that, I think it was a pretty fulsome update. Wow. But if there's still questions, I'll take them. I was going to say, it's just like you pretty much shot my entire Q&A sheet. All right. So let's talk on that 8%-10% guide. I mean, you did de-risk COVID out of it, but just to be clear, I mean, that 8%-10%, these are not at-risk projects or things that are going to show up. This is stuff that you've got contract line of sight. A lot of it's take or pay, right? I mean, you've got really good visibility. This isn't sort of like let's hope. We have strong visibility, and anything related to COVID that is assumed in the de-risking, that's still part of the fiscal 2023, is contractually obligated from our key customers where we do have minimum volume requirements and those types of things that factor into it. In terms of line of sight that we have to being able to backfill COVID, a lot of this comes from the new capacity that we have that's going to be coming online across those fast-growing areas that I mentioned: gene therapy, cell therapy, drug product manufacturing, but drug substance as well, which is an area that, by the way, we're not participating on the DS side of COVID-related revenue. We've been a beneficiary from a drug product or a sterile fill- finish standpoint when it comes to COVID-related revenue. But the large tech transfer programs, I would say we had a level of visibility and conviction around the 8%-10% prior to the tech transfers, but those certainly, I would say, increase our confidence around having line of sight to a guidance for next year that's going to be within that 8%-10% range. Obviously, one of the questions I get is if we do see COVID run at levels in which we saw in fiscal 2022, assuming that would be incremental to the 8%-10%, I would say partially, absolutely, that would be incremental. I mean, obviously, there'll be other programs that we'll have to figure out a way to support if we were seeing a significant level of COVID because we do have a finite amount of capacity. But absolutely, I would expect if we see continuation of COVID-related demand in line with what we've seen in 2022, that that would be incremental to the 8%-10%. And then just the last thing I'd highlight here is we spend a lot of time talking about what the drivers are of the business. And I mentioned the new capacity we have coming online, the tech transfer programs, and then the strength we have around existing assets, primarily the Bettera business. Two of those three bullet points are really biologics-driven, but we're expecting to see growth across our other segments as well. And the SOT strength and momentum we saw in 2022 should be a nice contributor for us into next year as well. So one of the concerns we've had with investors is there's this belief that COVID revenues are higher margin, right, which they're not, or at least when you look at it on the aggregate of what's there, they're not because you have roughly, what, 25% of the business that's 5%-10% margin at best. Could you sort of lasso that? Sure. No, I think that's a great point. So look, there's no question that the margin profile of our COVID-related revenue is absolutely attractive. And I think anytime you're running a product or a basket of products at high levels of utilization on assets, you're going to get some operating leverage out of it and see good margin as a result of it. And we have seen that. But there is a competing dynamic here that I think investors may not have an appreciation for, which is the component sourcing piece of the COVID-related revenue. So whatever that COVID-related revenue is for you, as you think about your estimates of what it was for a company, because we haven't disclosed that in fiscal 2022, 25% of whatever that number is is component sourcing revenue. And as Derik mentioned, that comes with a margin profile that's somewhere between, I would say, 5% and 10%. And essentially, what we're doing there is providing a service for our customers and procuring certain raw materials and inputs that go into the manufacturing process. And we charge them a small premium or markup to do that. But the way that gets treated through our P&L is the revenue plus the markup or the cost plus the markup is the revenue. The cost of goods is obviously the cost of the product, and what pulls through to the bottom line is just that markup at a 5%-10% margin clip. So our assumptions for next year, de-risking COVID in its entirety, which also means de-risking the component sourcing piece of that as well. And that, I would say, has created a more normal margin profile of our COVID-related demand in our fiscal 2022 and fiscal 2021 years. The fact that we're getting some operating leverage from the higher levels of utilization, but that's being offset by the component sourcing dynamic. So really not an overly profitable business in regards to other programs that we would be running through our biologics assets. Got it. And can we talk a little bit of, I mean, one of the big concerns is that Catalent and a bunch of other players in the space have been adding capacity. It is worth sort of noting that there's a big difference between the drug substance and the drug product when you sort of think about capacity. And on the drug product side, it's a very tight market, even with sort of the additions that have come on. And a lot of it has just been increasing shifts, and it's not really sort of like physical adding space. It's just more people, more turnaround time like that. So can you sort of talk a little bit about the dynamics of the capacity? Sure. No. So I'll say on the drug substance side, I mean, we get a lot of questions from investors that obviously understand and research the CDMO space and see press releases from Catalent and other peers and other CDMOs around the industry of adding capacity. And I would say I feel like a lot of the capacity that's being added is complementary to each other. And we're not seeing a lot of overlap in terms of where we're seeing. We're seeing significant investments on the drug substance side for some being large-scale drug substance manufacturing. That's an area of the market that Catalent doesn't play. We do have drug substance capability today, but we've been focused in the sub-5,000 L, so a very small, more niche part of the market. I would say where we have been investing more heavily for biologics assets has been on the sterile fill- finish side on the drug product side. And that includes vials and prefilled syringes, lyophilized cartridges. And those investments that we've been undertaking have been at our Bloomington facility in the U.S., which we acquired into through the Cook acquisition back in 2017, which is probably financially the best deal we've ever done as a company. And then as our Anagni asset as well in Europe. And from a drug product standpoint, I don't spend a lot of time looking at what other players in the space are investing. That may seem counterintuitive, but the reason for that is our decision point on where we're going to deploy capital is not based on just the attractiveness of the market, which is obviously a little bit of a tailwind that is absolutely attractive. But we need to make sure that we have line of sight to filling that capacity with a pipeline that's more within our control. We're not speculatively adding capacity and then bringing it online, having it sit idle, and then keeping our fingers crossed that we're able to win new business and bring on customers to fill that. We need to make sure that we see a pipeline that can support the investments being made across biologics. We need to see a maturity of the pipeline because the number of molecules we have in the pipeline today, over 1,500 development programs that we're working on across the company, but I think is a great number. It's certainly the strongest pipeline we've ever had. I would say the part of it that makes it more attractive is the fact that we're seeing a maturity of that pipeline, and we're seeing more and more programs move to later phase, phase two, and ultimately phase three. The success rate, when you see a program move to phase three, jumps to something like 50%-60% of those are going to make their way through to commercialization. The other thing I would say, and obviously, when you see that transition, you need to be ready to be able to ramp up and meet the needs of customer demand as they're looking to build stock for a particular launch of a product as it nears and ultimately gets its commercialization. So those are the types of things that we're looking at. We're investing less around what is the rest of the industry doing, what's the attractiveness of the end market, and are we going to get our share, but more around how does our pipeline support investments that we're trying to make across the industry. And also worth a point, obviously. There's been a lot of consternation about the slowdown in biotech funding. But I mean, you make your money on commercial products, right? It's not betting on a bunch of little players and hoping that they hit. I mean, you make your money on stuff that's there coming through, going through it. So you're not betting on a whole bunch of. Yeah. And so a couple of comments I'd make there. So first, 60% of the revenue the company generates is commercial revenue, so revenue already from commercially approved products. So obviously, that takes the biotech funding out of the dynamic for that portion of the revenue. For the 40% that's development revenue, I would say the vast majority of that is with, I would say, mid- to large biotech and pharma companies that are not at risk here from a biotech funding standpoint. What I would say here as well is when you're a company like Catalent that has a finite amount of capacity, you can't necessarily work with every potential customer out there. I don't want to say that we're trying to pick the winners because we're not, but we're certainly looking at creditworthiness and understanding the pipeline and the potential success of the pipeline for potential new customers on the smaller side that we would look to bring into the company, so we're not feeling anything today around the biotech funding as a result of those comments that I just made and where I would say we're exposed. If there is an area of the business that's more closely aligned or could be closely impacted by this, it's probably our Clinical Supply Services business, which is a clinical trial logistical services business we have where we're handling the product and kit side of clinical trials on behalf of customers. That's a business that's about 8% of our sales overall for the entire company and has a vast array of customers here. But that is an area where we do have, I would say, some smaller biotech companies. But again, we're not seeing or feeling any significant impact here across the business. So let's go one step further on this. It's like where you are seeing where you do have a lot of early exposures in the cell and gene therapy side because obviously that's not, I mean, there's one commercial product out. You've been involved with that. So can we talk about sort of how you see that? I mean, I think you said 150-some-odd projects that you're sort of going with there. How many of those do you need to win to sort of justify your investment? And what if none of them win? Yeah. No, good question, Derik, so gene therapy. I'll talk about gene therapy a little bit differently than cell therapy. Gene therapy is a business we acquired into in 2019 through the Paragon acquisition. At the time, we were getting a business that already was in its process of starting to scale up, and it was, I think, two suites on its way to four at the time, and we've invested further in that to get it to the level of 10 manufacturing suites and now have announced investments that we continue to make, and by the end of the calendar year, I believe we said, Paul, we'll be looking at about 18 manufacturing suites across our gene therapy business out of Baltimore, Maryland. As Derik mentioned, we have a very robust pipeline there. We did highlight as part of our earnings call last week that we're seeing some accelerated growth from some large customers on the gene therapy side. That gives us confidence around the investments that we've made there. But the other thing I would say here is Derik pointed out, we're not banking on 50% of the programs we're working on development going commercial. If that were to be the case, we wouldn't have the capacity to be able to support it. We have the capacity with the 18 suites that we'll be bringing online to probably support something like one or two or three commercial programs. So we're not banking on significant traction from a commercial approval standpoint in gene therapy in order to justify the investments we've made or continue to make around our Baltimore assets. The only other item I'd mention here is when we start to see programs move to that later phase and into phase three, that's a win in itself. And phase three programs in some ways feel closer to commercial programs than they do to development programs because the uptake in volume that you can see through a phase three study is pretty significant. So again, we're not banking on a significant level of approvals here in the gene therapy space. The last thing I'll mention is we've been very cautious in terms of how we've built out the capacity we have. We've built these suites in more of a ballroom style where you have the ability to bring in on wheels different equipment to be able to scale up to meet the needs of whatever the customers are looking for the suites in which you're utilizing for their work. And that can very easily be transitioned between other modalities. You think about mRNA or really monoclonal antibody drug substance manufacturing. Those are the types of things that we can do in these suites that we have built that we're dedicating today to viral vector and gene therapy manufacturing. So if we were in a position where we saw gene therapy, which by the way, we remain extremely bullish on gene therapy as a modality, in the event, though, that we did see a slowdown there for whatever reason, the assets that we've built and the way that we've done this has been extremely intentional and I would say makes them quite fungible here with very little in terms of additional capital that would need to be deployed by the company. So, just want to make sure we highlight that as well as we think about some of the investments we've made across the space. So I want to talk a little bit about the margins. And specifically, let's talk about some of the impact on the margin compression in Q3. Obviously, some of that was tied to the Brussels, the remediation of that plant. I think it's also worth highlighting. I think when that news hit, there was a lot of fear beyond this one. And I was trying to say, it's like, well, look, it's like 483s are what happened. I mean, no company is perfect. There's things like this. This one caught everybody's attention. It was a high-profile product, but it's like a lot of these things are there. But it also just says it's like you had a product line. You had a number of whole facilities shut down voluntarily, right? And yet didn't really impact your revenue growth, right? Diversification of the business. So we can talk a little about margin impact of Brussels. Are we through that? Does it have any sort of competitive issues like that? But just because I think there are people worried a lot more about that than it may have actually turned out to be. Yeah. No, I agree with that. I do think it was a little bit of an overhang on us for several months here around it. I mean, obviously, we take all inspections, comments from regulators extremely seriously, and we were disappointed with the 483, but again, from a CDMO perspective or just a manufacturing perspective, a 483 is what we would refer to as normal course. It's the way a regulator communicates inspections after an audit back to the company. We did make the conscious decision to proactively take the facility offline. We thought that was our fastest and best way to remediate all of the observations that were identified as part of the 483. As Derik mentioned, there was one customer that was impacted by this. The disclosure that's out there in the public domain around this has more come from the customer than it has from us because we did view this as normal course, and it didn't have an impact on our financials in the way that was going to deter us from being able to deliver on our financial commitments and our guidance. We did see a significant impact to our EBITDA margin in the third quarter within our Biologics segment. It was down about 200 basis points versus the prior year period. A lot of that, most of it, I said, was the remediation efforts at our Brussels facility coupled with the fact that the facility wasn't operating during that period. We've said that now we've brought the facility back online, but there are still some remediation efforts that we're undertaking. So there are costs associated with that that will be incurred in our fourth quarter. That was obviously reflected in the guidance that we raised and put out there last week on our earnings call. And I think that's an important note, as Derik said, in the light of what we were dealing with out of our Brussels facility and the intentional approach we took to remediation. We raised guidance for two consecutive quarters while we had a facility that was shut down. So I think it really speaks to the diversity of the Catalent portfolio, which is an absolute strength of the company and our ability to really absorb these bumps in the road that you see as a CDMO when you operate over 50 manufacturing sites across the globe. So obviously, again, disappointing from our perspective, something we've taken seriously, but we're on the other side of this now. And I think our customer that's talked about this publicly has been very supportive through the entire process here. I think they've showed that and continue to be a strong strategic partner for us. One last thing on that one. Sorry, Derik. I did want to get out in terms of the quality and reputational impact of such item. I think our customers, including the one that was impacted here, have many more data points about Catalent's strong operational and quality track record than a single 483 event. They've all dealt with this at their own facilities. They know it's normal course and part of the industry. So no reputational harm from our perspective. I think we absolutely see that with the strength of the pipeline we've been able to build. Any questions from the audience? So I guess as we sort of wind down the time here, it's like there's been a lot of changes in the CDMO industry, a lot of expansion, a lot of new companies coming in the space. It's like, how do you see this sort of like the competition between the different vendors sort of going out with this? I mean, obviously, there's been some news about the Thermo winning this Moderna contract and sort of going through. It's like, how do we sort of put that in the context of the broader CDMO market and your competitors? Look, it's a really attractive end market right now. I think there's innovators out there that have some really strong pipelines that are looking to ensure that they have capacity across the industry to be able to support the growth and expectations they have from the maturation of that pipeline. That's how I view the announcement that you're referring to. I would say our relationship with Moderna remains extremely strong. And I think as you think about the industry, there's going to continue to be areas of investment. And with the growth that we're seeing across the industry, there's significant needs from a capacity standpoint. And as I said, especially as it regards to drug products, where I do think we see very little investment from innovators in that type of capacity and capability. And I think that positions us as well as other players in this space extremely well. With that, you guys got a flight to catch. Thanks. Thanks for being here. Thanks for being for With that, you guys got a flight to catch. Thanks. Thanks for being here. Thanks for being for With that, you guys got a flight to catch. Thanks. Thanks for being here. Thanks for being for With that, you guys got a flight to catch. Thanks. Thanks for being here. Thanks for being for this thing. Thanks for running. Safe travels. Thank you.